George Papandreou's bombshell decision to put Europe's latest efforts to rescue the Greek economy to a public vote prompted as much dismay at home as it did abroad on Tuesday, with many of his compatriots wondering if the embattled prime minister could survive the pressure of navigating the country's worst crisis in modern times.

In a day of dramatic twists marked by defections from his party, calls for early elections, mounting concern over Greece's financial future and even a complete change of guard in the country's military top brass, Papandreou was attempting to weather the storm that has erupted in the wake of his announcement to hold a referendum on whether to accept the debt deal assembled by the EU and IMF last week.

As markets tumbled and EU leaders seethed, Papandreou's aides brushed off international consternation and called the move a "calculated risk" by a politician who is a gambler par excellence.

"George has decided to go over everyone's head and take it to the people. To do otherwise would have meant death to the political system and economy by a thousand slices. No country could go on with strikes and protests on such a scale," one aide told the Guardian.

The barrage of criticism that greeted Papandreou upon his return from Brussels last week – with the entire political opposition decrying the debt deal as a prelude to further austerity and even deeper recession after almost two years of wage and pension cuts – had also played a role.

Polls showed that almost 60% of Greeks were opposed to the bailout, despite the EU's decision to not only inject an additional €130bn in rescue funds into the country but also cut its €360bn debt pile by half.

"It is strange because he agreed to the deal," said Eri Raptaki, a telecoms employee, echoing the bewilderment of many Greeks. "The referendum decision has thrown everything up in the air. I don't know whether it's good or bad but surely Papandreou is not stupid, surely he hasn't lost his senses?"

Vardis Frangadakis, a hotel receptionist, was less sanguine. "I think he's gone mad. The whole thing is a catastrophe. They bring us to this point of staring into the abyss after all these measures, all these wrong moves, and then say 'you have a choice. Vote for us or bear the consequences.' That's blackmail pure and simple."

By late Tuesday, a picture of backstabbing, skullduggery and political intrigue had also started to emerge at the highest levels of government. As the finance minister Evangelos Venizelos was rushed to hospital, apparently suffering from appendicitis, his own aides made clear that Papandreou had been the sole instigator of the decision.

Venizelos, who has worked around- the-clock to win support for more financial aid from an international community that has become increasingly suspect of Athens' desire to modernise itself, "had no clue" and was as startled as anyone else when Papandreou announced his decision.

"The first thing he asked when he met Papandreou in private was 'have you informed foreign leaders?' He couldn't believe it when the answer was no. All day, from his hospital bed, he has been trying to explain the inexplicable to people like [German finance minister] Wolfgang Schäuble," one aide said.

Pollsters are convinced the vast majority of Greeks would vote against the bailout – even if it means leaving the eurozone.

The prospect of Greece descending into further turmoil deepened amid calls for early elections. As the government prepared for a vote of confidence on Friday, the main opposition conservative leader Antonis Samaras raised the stakes saying his New Democracy party would do "whatever it takes" to prevent Papandreou endangering Greece's future in Europe by holding the referendum. Samaras, who will hold a meeting of his parliamentary group on Wednesday, is "seriously considering" withdrawing all of his MPS from the 300-seat house, a move that would automatically trigger early elections. The change of military guard, while downplayed by officials, was a sign that Athens could be braced for even darker days to come.

But amid the machinations and bewilderment that Papandreou's great gambit has caused, senior aides said there was a cold logic to the move. Inside Greece it would stop the infighting and street protests that have overshadowed the debate over reforms the government needs to enforce in return for aid.

Outside Greece it was hoped the move would act as a "wake-up" call for those who have advocated "shock therapy" for the debt stricken country but have failed to take seriously the need for development and growth.

"For months we have sat in meetings warning of the social effects of such stringent austerity and people have chosen not to listen, even when it had become quite clear that the patient was enduring more shock than therapy," one government insider said.

"Papandreou had shown his commitment to change and the reform process but there are some decisions that as elected leader of this country he is entitled to make. In terms of hard politics there was absolutely no logic in informing foreign leaders of the decision as they would only have said it was wrong.

"They may be pissed off today but tomorrow when they wake up they will see the need to think through the implications of pushing Greece too far. Nobody even knows who our debt belongs to now and so we know leaving the eurozone can't even be comtemplated. Greece may be a problem but at the end of the day it may be an even bigger problem for Europe."

• This article was amended on 3 November 2011. The original said: "Polls showed that almost 60% of Greeks were vehemently opposed to the bailout". In fact the polls showed that almost 60% of Greeks had a negative or partly negative view of the rescue deal.